Top 5 Investment Shortcuts for Retirement, Recommended by Professionals
Game on, retiree! This retirement-savings cheatsheet is straight up, uncomplicated, and chock-full of expert wisdom. Let's dive in, and let's get that nest egg poppin'!
1. Don’t get too cozy with your couch
Settle for safe, low-risk retirement investments, and you might as well kiss your hard-earned dough goodbye. That's right, buddy, play it too safe and you'll miss out on some serious moolah. Many experts are finally admitting that a more aggressive strategy, with a bit more equity, could be just what your retirement's been waiting for.
"You might live for another 20-30 years in retirement," says Noah Damsky, a money-whiz CFA. "Playing it too safe could leave a pretty penny on the table."
No sweat, here's how to turn this cheat code on:
- Yearly check-ups: Tweak your risk tolerance and investment mix at least once a year, especially as you approach old age-ville.
- Jump on the bandwagon: Opt for a 401(k) with a later retirement date. A later date pops the retirement-date cherry, leading to a higher stock allocation, meaning more potential growth but also a bit more risk.
- Talk shop with a pro: If you have a financial advisor, schedule a portfolio review to make sure you're not missin' out on growth opportunities.
Speakin' of advisors... match with the right pro who can help you navigate the wacky investment world and crush those retirement goals.
2. Diversify like a pro!
If you're stuck with only one retirement account, aka your 401(k), you might be limiting your saving opportunities and threatening your tax money with the IRS. That means more money for ol' Uncle Sam and less for your golden years.
"Diversifying your accounts gives you more tax-saving flexibility," says Joe Conroy, a tax-savvy CFP.
Rockin' a 401(k) is cool, but consider sliding into a Roth IRA too. While you won't get a lower tax bill for this year, you'll skip taxes on retirement withdrawals, which is a major win in retirement-land. Plus, a Roth IRA might offer cheaper exchange-traded funds (ETFs) compared to your 401(k).
Conroy doesn't stop there, though. No way, Jose! Crank up the diversification by adding a taxable brokerage account—this can save your hide by cutting down on taxes when it's time for withdrawals. That's right, by withdrawin' from taxable accounts first, you'll pay lower capital gains tax rates, and traditional retirement account withdrawals are taxed at higher rates. Plus, retirement account withdrawals before age 59 1/2 often come with a 10% penalty that you can avoid by pullin' from taxable accounts. Smart, huh?
Wanna step up to the big leagues? Implement this secret trick:
- Familiarize yo'self with the different taxes: * Tax-deferred accounts (401(k)s, IRAs): Lower this year's taxable income, taxed as ordinary income during retirement. * Tax-free accounts (Roth IRA): Contributions grow tax-free, and withdrawals are tax-free during retirement. * Taxable accounts (brokerage accounts):* Realized gains are taxed at a lower capital gains rate, typically around 15%, while retirement account withdrawals are taxed as ordinary income (most folks fall in the 22-24% tax bracket).
3. Annuities are like your very own personal pension plan (but with a few caveats)
Annuities might have a rep for being complicated and riddled with fees, but if you're lookin' for a secure, steady stream of income to replace your paycheck in retirement, this plastic is just the ticket.
There are different types of annuities, but a single-premium immediate annuity (SPIA) is pretty straightforward. This type of annuity lets you trade one lump sum for monthly income lasting as long as you live, a bit like a self-funded pension.
"SPIAs can act like a paycheck replacement," says Mike Hunsberger, another CFP. "Some companies offer SPIAs with cost-of-living adjustments, too!"
If you work out your monthly expenses, an SPIA might help you budget better, as you can allocate a cool chunk of cash to cover 'em. This means you'll have more freedom to go ham with your investments elsewhere, 'cause you'll always have the steady annuity income comin' in.
Hunsberger digs SPIAs for being relatively simple and affordable. But remember, annuities ain't for everyone—some carry costs that are best avoided, so it's smart to get at least one pro opinion before you dive in.
4. Time a Roth IRA conversion for the perfect financial reboot
Retirement planning ain't just about how much you put away—it's also about managing your tax bill. A Roth IRA conversion during what some experts call the "retirement income valley," could be a tax-savin' game-changer.
The retirement income valley is the down period between when you retire and startreceivin' required minimum distributions (RMDs) at age 72. If you retire at 64, you've got eight years to do the conversion.
The advantage? Your income's probably gonna be much lower in the valley, and you'll be way less likely to shoot up to a higher tax bracket with each extra buck of converted dough.
"You'll be in a lower tax bracket, which means you can convert more dough at a lower tax rate," says FP Erik Goodge.
Even better, once ya throw money into a Roth, there are no RMDs, meaning you can pass a chunk of change to your loved ones with a clear conscience.
5. Work one more year, and make retirement that much sweeter
Workin' an extra year might drive ya crazy, but the financial benefits you'll reap can transform the way you view old age. Workin' an extra year could add tens of thousands to your savings, and reduce the odds of runnin' outta dough in retirement.
"You're lettin' savings grow longer, savin' more, and spendin' less of your nest egg," says Joseph Boughan, a CFP. "It's the highest leverage thing you can do to improve your retirement nest egg."
Sure, it won't be easy for everyone, but if you can put down the sail and stick it out, the payoff could make a massive difference in your financial outlook.
- To maximize your returns in retirement planning, consider a more aggressive investment strategy that includes a higher allocation of equities. Regularly review and adjust your investment mix to account for changes in risk tolerance and market conditions.
- Diversifying your retirement accounts can offer more tax-saving flexibility. Consider opening a Roth IRA in addition to your 401(k) to take advantage of tax-free withdrawals in retirement. Also, consider a taxable brokerage account to minimize taxes during withdrawals and avoid penalties for early withdrawals.
